Family awarded Sh1.2bn against HF in botched home auction

Housing Finance is challenging a Court of Appeal ruling that has awarded a Nairobi family Sh1.2 billion compensation after two of the three judges ruled that the mortgage lender had breached the law by selling the family’s home in Runda.

The court on Friday directed the listed company to pay damages of Sh20.4 million - which was the principal sum in dispute - to the couple. The money is to be paid together with an annual compounded interest rate of 26 percent since the year 2000 when the case was first filed in court. This pushed the penalty to Sh1.2 billion. However, Housing Finance is asking for a stay of execution of the ruling until its appeal in the Supreme Court is heard and determined.

The Court of Appeal upheld an earlier ruling by Justice Joyce Khaminwa, which had found that the sale of the house belonging Sharok Kher Mohamed Ali Hirji was illegal. The ruling said the payment should be compounded at an interest rate of 26 percent.

Housing Finance has protested against the compounded interest, arguing that it will be forced to pay an amount higher than the value of the property in contention.

“By any stretch of imagination, this is harsh, unconscionable and oppressive. It also amounts to unjust enrichment and therefore goes against public policy,” the mortgage lender said yesterday in a notice announcing its intention to block the award at the Supreme Court.

In her dissenting opinion, Justice Martha Koome disagreed with sections of the judgment, faulting the inclusion of the 26 percent compounded interest. However, the decision of the majority, Justices Kantai and Hannah Okwengu, prevailed.

Should the firm take its case to the Supreme Court, it will have to prove that the dispute is of public interest or that it is seeking a constitutional interpretation for the matter to be heard by the Supreme Court.

Justices Kantai and Hannah Okwengu ruled that HF had raised interest rates on Ms Hirji’s loan from 13.5 percent to 26 percent without notice and had, therefore, fallen foul of the law. The mortgage firm was also accused of failing to issue a 45-day notice of the sale as required by law before auctioning the property.

Mr Hirji’s wife, Firoz Nurali Hirji, had said that Mr Hirji had charged his property to secure a loan of Sh600,000 in 1997. He repaid part of the loan, but defaulted at some point and the bank then issued a notice of intention to sell the property to recover its money.

The loan advanced was to be repaid over 15 years and that as at January 17, 2000 he had paid in excess of the amount advanced and was ready and willing to complete paying any amount found to be due or owing. However, the bank sold the property in January 2000 for Sh6,050,000, a value disputed by the couple, who said the property was valued at Sh20 million. According to the couple, after the notice was issued, they continued making payments and were made to believe the bank had accepted the money.

In its defence, HF said that it forwarded a cheque for Sh5,079,149, being the excess of the proceeds of sale and the court should have factored the amount in its judgment. By the time the property was sold, the couple had a balance of Sh231,738.45 and interest was Sh683,387, the bank said.

Ms Hirji said she came to learn that the property had been sold after the rent she used to receive of Sh150,000 from a tenant stopped. She further said the tenant had offered to purchase the property at Sh12 million.

In her initial ruling, Justice Khaminwa had said the sale was illegal and directed the bank to pay damages of Sh20 million and pay costs of the case plus interest from the time the case was filed in 2000.

In its appeal, the bank faulted the judge, saying that she had failed to appreciate that the property had been sold to a third party who should have been enjoined in the case as party. Further, the bank said in the event of improper exercise of power of sale, the judge should have found that the couple’s redress lay in damages.

In 2015, the businesswoman issued a notice to the mortgage financier, threatening to attach the lender’s equipment to recover the damages, which then stood at Sh726 million. The award given by the Court of Appeal is the equivalent of HF’s combined profits for the four years to 2018.